Facebook’s Zuckerberg Talks About Giving Away Basic Internet Services

By Tiernan Ray

At the Mobile World Congress in Barcelona, David Kirkpatrick is hosting a keynote discussion with Mark Zuckerberg, CEO of Facebook (FB). Kirkpatrick met Zuckerberg in 2006, when he was 22 and Facebook had 9 million users. Kirkpatrick was so impressed with Zuckerberg's sincerity, he went on to write a book, The Facebook Effect.

Of course, Zuckerberg was certainly an interesting choice for a telecom conference, given his company just bought WhatsApp, a potential replacement for the text messaging system, for $19 billion.

Kirkpatrick tried to get Zuckerberg to talk about that amazing price tag, only Zuckerberg wasn't too interested in taking about that and instead wanted to talk about the initiative he's promoting, “Internet.org, to bring basic internet services to the masses for free in order to bring more people onto the Internet. (WhatsApp founder Jan Koumwas a panelist earlier today.)

Kirkpatrick: You bought WhatsApp for $19 billion. Tell us what that's about.

Zuckerberg: WhatsApp is a great fit for us. It's the most engaging app that we've ever seen on mobile so far. What we see is that it is on a path to connecting more than a billion people. There are very few services in the world like that, and they're all very valuable. When we first started talking about this, it was about what it would mean to connect everyone in the world. But today what I want to focus on is Internet.org. It's going to be a much more profitable model for carriers, and get more people on the Internet faster.

Kirkpatrick: Why is this so important?

Zuckerberg: Only 2.7 billion people have access to the Internet and it's growing more slowly than you think. The main cost is not the smartphone, it's the cost of the data access. We are really not on a path at this point to connect everyone in the world. It's really important, because connectituty is not an end in itself. It's what connecituty can bring. There was this Deloitte study that came out the other day that said if you could connect everyone in emerging markets, you could create more than 100 million jobs and bring a lot of people out of poverty.

Kirkpatrick: What is it?

Zuckerberg: More than 80% of people in the world live in a place where there is already 2G or 3G service. The reasons you might not have connecituty is cost, but then also the question of why you would want to spend your money. You have never had access to the Internet so you don't even know why you would want it. In the US we have 911 to get basic services. Similarly, we want to create a basic dial tone for the Internet. Basic messaging, basic Web information, basic social networking. All of those things are essentially text-based, so it can actually be a good business to provide them for free or cheap. We've been working with one of the partners in Internet.org for the last year or so to build out a lot of infrastructure. In the Philippines, we have seen the number of users of the internet double. We did that with The Globe in that country. We made services such as Facebook free. Once you make it economical to do that, you can add other services such as Wikipedia. We've also worked with Tigo, and they've seen growth of Internet users rise by 50%. The early results are extremely promising. We've proven to ourselves that the model can work.

Kirkpatrick:So how does anyone make money from that?

Zuckerberg: It goes back to this question of why are the next two to three billion people not online now? It's not because they don't have money. It's because they don't know why they would want a data plan. If you said, Do you want Facebook or WhatsApp,

Kirkpatrick: So it's like a gateway drug…

Zuckerberg: We call it an on-ramp…

Kirkpatrick: That's perhaps better than a gateway drug…

Zuckerberg: If we do this, it will make money for everyone who's here. We are highly confident we'll get to a point where it will be highly profitable.

Kirkpatrick: What do you want carriers to do?

Zuckerberg: We sont have capacity for a large number of carriers, but we do have capacity to work with a few. A lot of the arrangements we have with folks, we'll test things over a period of time. What we want to do next is have a year-long period to dive into this with folks to show that the model works. And then we could come back here in a year or two and have a more programmatic way to work with carriers.

Kirkpatrick: What is the reason for Facebook doing this?

Zuckerberg: When I talk with my board of directors about spending a billion dollars to do this, I can't come up with any model that's going to be break even on this over any amount of time in which we make investments. But I feel really strongest about this. Reaching a billion people was this big moment for us where we stepped back and said okay, what do we really want to do with this. I think we are probably going to lose money on this for a while. And we could try to get to 1.1 billion, or 1.2 billion, and we will do that, on the way to something else. There's no way today I can present a model that this is going to be highly profitable,but this is something we believe is highly important.

Kirkpatrick: How long will it be before everyone would have basic services.

Zuckerberg: What I hope is that we can prove the model works, and then work with a lawyer number or carriers. Which is when I think you would start to see more folks getting onto the Internet. Within five years, I really hope that the number is not just a little more than a billion people, but closer to connecting everyone in the world.

Kirkpatrick: But with WhatsApp you spent $19 billion, and your saying there's no immediate payoff, so how do you justify that?

Zuckerberg: I think its worth more than $19 billion just on your own. Even just independently I think its a pretty good bet. Then there's the question of why is this good for us to be together. The point is that by being part of Facebook they can focus on connecting a billion people in the next five years, rather than having to focus on their business model. What we envision for carriers is how to help them get more subscribers. It's going to be up to them to decide which services they're going to want to offer.

Kirkpatrick: This reminds me of the OpenCompute project. How are they going to be able to make money even thought they are giving stuff away for free?

Zuckerberg: We have three pillars, which is reducing the cost of providing the Internet, either through reducing the infrastructure with OpenCompute, or reducing the cost of smartphones, or the cost of spectrum. The second is using data more efficiently. I think we're almost all the way there. A year ago the average person was using 14 megabytes a day. We are already down to about 2 megabytes per day. And we are on the way to 1 megabyte. And then the third pillar is increasing the ability to upsell people to more services. So for example you are using your basic Facebook feed and come to a link for another service and you click a link to purchase that additional service.

Kirkpatrick: What about this Ericsson lab you announced?

Zuckerberg: We did this hackathon recently with Ericsson where developers could get a feel for what their apps do to the bandwidth requirements. You really come away with empathy for the people you're serving and how bad the experience can be. It's about internalizing that empathy.

Kirkpatrick: You're becoming like a systems integrator for the Internet.

Zuckerberg: I don't think we should get that much credit for this. This is not going to work if its

Kirkpatrick: Will the snowden revelations be a problem for Facebook?

Zuckerberg: You know, trust is such an important thing. We continue to share data from requests we make to the government to share what we know. I actually think the NSA issue has actually helped us to work together with competitors better than in past. I think it's just such an important thing that it's brought together the parties a lot more around policy. The governments blew it on this. I think now they're getting there. They are only now getting to thr range they should have been.

During the Q&A, Zuckerberg was asked by an audience member if he would make another run to buy competing messaging service SnapChat. Quipped Zuckerberg, “After you buy a company for $16 billion, I think you're done for a while.”

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.